Question

Alright so my first ever credit card was a secured card from my credit union. It was only $150 and it said I could get it unsecured. Well I made 7 months of perfect payments and low utilization and I found out I couldn't actually get it unsecured. I applied for a new unsecured card and got approved for $500 limit. Talked to my credit union and they said I can only close it or keep it. I wanted my $150 back though. The only way to get it back is to close it. I'm new to this credit world, what would happen if I close a card out? I have total now 2 credit cards the 500 and 150 secured. I have 100% payments and 26% utilization between the two accounts. Thanks for your help

All Responses

26% utilization is on the high side. By eliminating your overall credit availability; your credit score will drop and your utilization will be even higher. That will make your credit score drop for a time.

You currently have $650 of available credit. You're spending approximately $169 of this if your total utilization is 26%. If you close out your secured card, but continue to spend the same amount? Your utilization will jump to 33.8%. You'll take a hit on utilization ratio (both total and on your single remaining card, as I assume your $169 was spread out between the TWO cards), available credit and average age of accounts. Your score will likely decrease significantly, especially if you have a limited history.

With that said - how badly do you need the money out of the secured card right now? If you don't plan on keeping at least one of your two current cards indefinitely, you should close out the secured sooner rather than later. This is because you usually want to keep older cards as long as possible. Until you have enough history, more cards, better utilization and a higher credit line? You may not have the option to apply for new cards to make up for the loss of the secured for a while. So cancelling it now will mean accepting that your score will take a dive which you will have to rise back up from. You can achieve this by using 10% or less on the $500 card after cancelling the secured. If this isn't an option or you can't take a hit on your account right now? I would just leave the secured card where it is until you're in a more stable position.

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